Pensions and Strikes

There is to be a strike tomorrow. Thousands of people are going to down tools, stop work, and march shouting slogans first thought up by their ancestors long, long ago.

Do I support them?

No.

To be fair (I try to be, sometimes), my first annoyance with this whole matter was the money, but then I heard that teachers had been advised not to tell parents whether or not their schools would be closed for the day, purely to increase the anger and frustration amongst those who pay the teacher’s salaries and pensions. That is adding a new level of cynical contempt for the public to the matter.

It was largely that which made me want to think about pensions and how the teachers and other civil servants are being treated compared with the people who have to pay for all their benefits through the tax system.

There was a time when striking was justified. People in Britain used to have appalling working conditions, and many would slave for a pittance, only to die young. This was the period of the industrial revolution. The old systems of feudal loyalty had been wiped away, and the linkages between barons and their peasants and their lands were lost.

There was much about medieval Britain that could be admired. Medieval institutions took their responsibilities seriously. A nobleman’s table would save food for the poor. all were expected to save a tenth for those who couldn’t afford their own food. The Church made sure that locals did not starve. Yes, there were exceptions, but the rules were clear, and they appear to have been honoured.

Peasants had to work for free, because a serf’s labour was his duty. He had to work on his lord’s lands for a set number of days a year. It was a part of the social contract, the tripartite arrangement, whereby the workers gave their efforts to the common good, the clergy protected their souls, and the “Bellatores”, the knights and men-at-arms, maintained the rule of law, punishing those who deserved it, preventing riots and generally keeping the King’s Peace. In return, the lord would have to provide food and drink for his peasants. In those happy days, there were no fears about drunk driving, no concerns about liver damage, so there were many happy people. And there were many more feast days than we now have bank holidays. I saw a calculation recently that showed the total days worked by peasants in the 1300s were fewer than those which we work today. And they drank a damn sight more.

With the advent of the industrial revolution, the bonds holding men and women to their area have been cut. Now they are free to travel as they want, and can offer their labour to any who will pay. There is no free food and drink at regular feast days, but men and women (and children) are free to make a living as they wish.

There are advantages to this – and costs. Now governments look upon their citizens as units of work. The right of individuals to enjoy their lives is less important than the number of days working productively.

In many countries there has been a presumption that those who worked for the government would be paid rather less than others. And because of this, they should be granted other benefits.

I well remember as a salesman the day I spoke with a DP manager for a local authority and lost the power of speech. At the time I had not taken a holiday in three years. The man I was talking to had been employed by his London council for some twenty six years, and as such was eligible for fourteen weeks holiday each year. I simply could not comprehend such generosity.

But it’s not only holidays. There are pensions, too.

The men and women going on strike are doing so because they are being asked to pay another three percent of their income into their pensions.

And it outrages many. It probably would be enough to get me to march, if I were in the fortunate position of having a pension like theirs, in order to protect the deal I’d accepted when I had taken the job. No one told all these workers that their contracts would be changed.

No one tells anyone that their salary and benefits can go down as well as up.

But Britain is bankrupt. Not a lot of people seem to realize how far into the red we’ve gone.

Gordon Brown’s government managed to double public spending between 2006 and 2010. After all the projected cuts (and there is no cut in public spending yet, for all the froth and fury, we’re spending more this year than last, and more than Labour’s last year in government) we will return to the level of expenditure of 2007. Which is not a massive achievement, frankly.

Times are hard. Some public servants have seen pay freezes. But when it comes to pensions, they are fighting the wrong cause.

Yes, many would understand that people will feel hard done by when they see their pensions being altered.

I’m afraid I think they should grin and bear it.

Our civil service pensions are not affordable. They are paid out of the current year’s tax take, and I say again: it ain’t affordable. The number of pensioners is growing alarmingly as we all live longer, and the longer we tinker at the fringes of pensions reform, the more all our kids will have to pay.

It’s hard for a non-pensions industry bod to get a grip on, I know. Just to confirm, I asked an actuary last night what the basic calculations were.

For someone who wants a pension of £20,000 today, the calculation is that they will need a funding pot of at least 50 times that amount. So, if you want a pension paying you £20,000, you will need to have saved 50 X 20,000. That is a million.

So, for a teacher earning £35,000 who wants a £20,000 pension, that person will have had to have saved a fair amount of money. Especially if they want to take early retirement.

Of course, it is worse for other workers. Someone in the private sector would have to earn that pension pot without too much help from the government, and would have to work until 65 years. After that, they’d take out the money as a lump, invest it, and take an annual amount as an annuity.

A civil servant wouldn’t have to worry about such grubby fiddling. They are guaranteed their money from the tax take.

At present the police spend about half their annual budgets on their pensions. As the number of employees falls below the number of pensioners, where should the line be drawn?

Just how long do the unions think this can continue?

Many accept the basic illogicality of this situation, but then declare, apparently without irony, that we should not all join a race to the bottom, as if there was a forest of money-trees somewhere in the midlands, and all we have to do is cultivate them so that all the private sector workers can enjoy the same benefits. Some no doubt reckon that the best solution would be to tax all bankers to take their money and bonuses, and redistribute it (ie steal it) for others.

The banks would leave en masse. Many of their workers wouldn’t – they’d just join the growing dole-queues – and the country would have lost all the revenues the banks have given us. That isn’t a solution.

Equally there is no forest of money-trees. We cannot get rid of the debt. Printing money is helping – but only by causing inflation. It’s simultaneously destroying the savings of all those who have put their money into pension funds. A double whammy for all our pensioners.

But the unions don’t want to pay a little more for their own pensions.

So, do I support the strikers tomorrow?

Sorry, guys, no.

You are asking me and my family to agree to pay for your pensions so that you don’t have to.

If you want a pension pot of a million quid (and who wouldn’t?), I am afraid I think you should pay for it from your own savings. Not mine.

Comments

ARRRRRGGGGHHHHHHHH – I don’t know if you realised but teachers, nurses, firemen, refuse collectors, care workers all pay tax too! We’re paying for our own pensions via contributions and tax. And private sector pensions are generally 3% – I know I worked there for 10 years!, Now i’m a teacher I’m paying over double that at 7% and they want to up that??? I’m not rich….But I would have been much richer if I’d stayed in the private sector. But don’t worry, when I’m out of touch with society and have nothing in common with teenagers, I’ll be teaching your kids. Whilst protected by Zimmer-frame firemen and Saturday night police patrols of pensioners. Get a grip!

Nick, where do you get the impression public sector pensions are 3%? The actuarial calculation is for a pension pot of 50X the annuity – that’s the current status. I remember when I was able to save for a pension the amount was about 12%. There is no final salary or similar pension that would be paid at 3%! You wouldn’t save a halfpenny at that rate, chief.

The daft thing is, though, that it’s nothing like the amount that’s needed. And as I said – we cannot afford to keep paying pensions out of current taxation. It’s a broken system that was guaranteed to fail.

This whole pension kick makes me reach for the sick bag. Not everyone in this country pays into a private pension scheme. Most will only ever have the state pension to rely on.

I lived in another country for forty-two years (New Zealand), before coming home. One night when the nation was asleep, the then PM and finance minister, Robert Muldoon, co-opted everyone’s pensions to pay off the national debt. Damage done, the following day he resigned on a fat ministerial pension.

For God’s sake don’t tell George Osborne about that, otherwise he might be tempted to do the same!

Ruddy hell. Didn’t know that, Jack. My brother’s living out there now, near Wellington. Politicians are all as dishonest and money-grabbing as each other, from what I’ve seen, but that’s another blog post! Thanks for the comment. I think this is one blog post that will get some interest generally.

I thought one of the main reoasns for the flat rate pension was to simplify the existing pension system, like additional payments to pensioners via Pension Credit Guarantee, etc. If they are going to retain the PCG, won’t the savings be made smaller? Is there anywhere that we can see the official version of this retention of the PCG? I must say, it does look like the wheels are starting to fall off this bill already. To be introduced initially in 2015, then 2017, then 2016. Minimum number of years was 11 years, then 1 year and now between 7 and 10 years. Maximum number of years required was 44 years, then 30 years, now 35 years. All this indecision and uncertainty makes it difficult to plan for retirement.

In April 2013 the state pension will go up to a3110.14 per week.There will not be any auto elnonmert benefits because the system has only been introduced and by the time 2016 comes along, there will be virtually nothing there that could have been saved. The government will benefit hugely to the tune of a35.5 billion per year by bringing the implementation date forward one year because the flat rate pension system will mean that employers and employees can no longer get the benefit of discounted National Insurance contributions through contracting out their pensions which will be abolished. All for them, none for us.

The average teacher’s pension isn’t £20k, Mike, it’s between £7k and £10k, depending on whose figures you believe. £20k is a sort of theoretical maximum for a teacher who’s done 35-40 years at £35k a year, which I would guess is a fairly rare thing (since even ignoring drop-off rates you’d need to start being a teacher at the age of 25; average age of new teacher trainees is 30+, IIRC). Average public sector pension according to the Hutton Report is £7.8k per year, with half of all those retired in the public sector getting £5.6k per year or less. Upper-end public pensions can be very, ludicrously, generous, but at the normal working end it’s a myth that they’re anything gobsmacking. Granted private pensions aren’t usually much to write home about either (AFAIK – I don’t have one at all; I’ll presumably keep working until I slump dead at the keyboard), but that’s an issue for employers.

I don’t know about schools being advised to keep things on the down-low either; maybe out west where you are, but all the ones round here informed parents a week in advance and the county council runs a list of them for anyone who missed out.

Hmm – Well, the normal salary that I’ve been looking at seems to imply the usual salary for newer teachers is nearer £30k, and the pensions benefits (http://www.guardian.co.uk/society/2011/nov/29/why-are-teachers-striking?newsfeed=true) are based on final salary, with the majority getting “1/80 of their final salary for every year they worked …” “plus a lump sum of 3/80 of final salary for every year worked” – although it changed after 2007, to 1/60 for every year and no lump sum. 2009-10 Hutton said the average teacher’s pension was about £9,800 – index-linked, I think. A longer-employed teacher would be getting more on the basic calculation. If they come to the profession later, presumably they have existing pensions from past jobs. But my basic point is, they shouldn’t be striking to hold on to higher employer contributions that aren’t justified. Even if it’s a pension pot to pay ten thousand as a pension, that involves us being taxed a half million pounds because the pension is unfunded. We pay annually for all the pensioners.

I have no problem with pensioners, nor with people living on a decent whack. In particular I’ve no problem with nurses, police and teachers getting good pensions. But, and it’s a big but, I don’t see why they shouldn’t have to make equivalent contributions to their pots as other workers. Their money isn’t that bad now, especially with their TLR and other payments. And if they want to retire earlier than other workers, I’m afraid that has to mean their pensions are reduced accordingly. With guaranteed jobs, pretty much, good holidays, Baker days so they can prepare and plan, and much better pensions than others can expect, I think it’s not too much to ask.

And the main point is, of course, that the annual cost of their pensions is rapidly becoming unsustainable. The NHS is the only government employer where there are more workers than pensioners taking funds, which is why budgets are so screwed. I mentioned the police in the blog, I think. We cannot keep on paying pensions on an unfunded basis. The lot will go belly up, if they try that.

So I still reckon it’s nuts to go on strike over this. It won’t win them support.

What is criminal is that the poor ruddy private pension owners have been doubly screwed. Gordon Brown put in place his stealth tax, which cost billions. The funds lost that money, which means the amount to be paid to pensioners reduced. And now, with inflation being stoked deliberately by that twit in No 11 Downing Street, they’re seeing their savings shrink even further. What a state we’re in.

I think the theory is that the Pension Credit Guarantee sytesm will be abolished to help fund the new flat rate of pension. However, clearly there are some people, who will not have paid sufficient NI contributions to give them anywhere near the flat rate maximum pension, so there will have to be transitional arrangements to deal with that, if not permanent arrangements . So they will have to continue with the PCG and will not have all of it to help fund the flat rate pension. Of course, the PCG will still exist for pensioners who qualify under the pre 2016 state pension arrangements. The simple pension sytesm is starting to get more complicated all the time.

Mike, I loved your (tongue-in-cheek?) idea that we should return to the medieval economic system. As a poor bloody worker I would then depend on the scraps from the lord’s table, would I? And be grateful that, if I tugged my forelock, he would ensure I didn’t starve? It doesn’t contribute much to a sense of self-reliance, does it? Nor would I be free to travel, but do as my father did and stay in the same place. Some bloody life – I think I would prefer to starve! Or maybe turn to robbery – purely as an expression of political disaffection with the prevailing capitalism system of course!
Oh, by the way, the Labour government may have increased public spending, but it remained at the same level expressed as a percentage of GDP. Statistics, eh.

As you know, the medieval system would have worked well with two beneficient dictators like you & me, Ian! What is wrong with the idea of civil servants, who’re commonly earning more than their private business equivalents, having to contribute in the same way?
The pension system has to change. It is too inequitable. The changes proposed are relatively minor, and don’t compare with, say, what Gordon Brown did to the Post Office pension fund a few years ago. But no strikes were called then because the unions didn’t want to rock the boat with a Labour government.
But, out of the strikers, there were the FDA – the First Division Association – who have the best pensions of anyone in the country, index-linked. And largely funded by the taxpayer, with minimal contributions from the beneficiaries. There was a lovely lady on the radio, a nurse, who earns £40,000 at 39 years of age. She is expecting a pension of £30,000 a year, and is currently paying £200 a month into the ‘fund’. A £30,000 pension means a pension fund for her of £1,500,000. Her £200 will not cover it. So she is being asked to pay an addition 30% – another £60 – to boost her investment. It’s not enough. In fact, it’s a laughable amount. But for her to go on strike to demand the full pension without increasing her contributions is worse than a sick joke.
On government spending, they’ve increased it. Figures say 2000 was 36% of GDP. It’s now 47% With pensions being funded from present taxation, and with the age of death increasing, there is not enough money available to carry on. It’s just not sustainable. So people will have to pay for their pensions. They’ll have to save their own pension funds.
Which is why Hutton, a Labour peer, recommended these changes!

I honestly don’t know enough about pension funding to comment other than to say that my reading tells me that the National Audit Office says that the public service pensions cost to the government (as a proportion of GDP) is set to FALL in a few years. So the government can only argue they don’t want to afford it any more – not that they can’t afford it. Let them speak the truth and say only that they want to reduce it along with other costs.
I agree with you that public service workers may have to reconsider whether they should get reasonable pensions. But they have a right to protest, if their original terms and conditions – which they considered when taking the job or not – are being reneged on.